Investors likely to pivot to international stocks after China stimulus: BofA By Investing.com

Investing.com — More than $129 billion moved into cash funds in the week ending September 25th, Bank of America said in a new report. This marks the largest flow in 18 months.

Equities, meanwhile, attracted $25.4 billion, with US stocks seeing inflows of $10.9 billion, bringing year-to-date (YTD) inflows to $363 billion annually, the second largest on record.

European stocks saw the biggest inflow in five months at $600 million, while emerging market (EM) stocks saw the fourth biggest inflow since 2024 at $9.7 billion. Despite minor outflows from tech funds at $200 million, YTD inflows from the sector are on track to set a record at $60 billion.

According to BofA strategists, Wall Street’s bullish trades include longs in gold and technology coupled with short positions in 30-year Treasuries and China.

They believe the ongoing bullish rotation will “continue until the recession causes a ‘pull-back’ from stocks into bonds or the disorderly rise in bond yields reverses the gold/tech lead.”

The BofA team also suggests that investors could pivot to international equities, particularly to capitalize on China’s continued stimulus, which aims to support growth through measures such as a reduction in the reserve requirement ratio (RRR) and household savings from lower mortgage rates.

However, the bank warns that “if this stimulus from China does not work, geopolitical risks (will) increase.”

Among other weekly inflows, investment grade (IG) funds saw an inflow of $10.2 billion, bringing YTD inflows to $415 billion annually, a record pace.

Instead, US Treasuries faced an outflow of $1.6 billion, marking the biggest four-week redemption since December 2023.

Emerging market (EM) debt inflows were the highest since January 2023 at $1.2 billion.